Educating Investors

95% of Investors don’t make money in the long term.5 min read

Benjamin Graham, Father of Value Investing once quoted that, “Individuals who cannot master their emotions are ill-suited to profit from the investment process.”It is known that having the right attitude can win you battles and rule Palaces. Investing in the stock market is not less than a battle. Moreover, it is a battle that an investor has to fight with himself. He has to win against his fears, his emotions, greed and his attitude especially during extreme market conditions to succeed in creating wealth. An investor has to make peace with the fact that losses are a part of investing into the stock market and that he might lose money at some point. He cannot let his fears and emotions get the better of him. The only way to become a successful investor is to accept that uncertainty is inevitable and believing that market has continued to grow in the long term despite facing extreme conditions and crises. Most investors fail to follow this and end up incurring huge losses.

EMOTIONAL INTELLIGENCE AND INVESTING

The ability to understand and manage your emotions is the first step in realizing your true potential to become a successful investor. Emotional Intelligence (EI) plays a fundamental role in shaping an investing career because you need to develop this skill to have a strong and clear mindset and a disciplined, unemotional and patient investment approach.

EMOTIONAL BIASES

Why do people let their emotional biases rule their mind? This is because people often neglect the importance of development of emotional intelligence. The most important thing that influences your attitude and your emotional abilities is the way you have been raised by your elders. Children tend to develop a sense of existence and individuality, of “I am” at a tender age in their life. Growing up, these children who now are adults develop a strong sense about themselves in the form of EGO. This ego does not let a person have control over his emotions which in the long term impacts his performance and his ability to make prudent decisions.

Ego does not let investor accept his flaws. He usually becomes short-sighted, impatient and reckless with his decisions when he suffers losses, eventually becoming self-destructive. It becomes very difficult for him to accept that his ill-timed reaction on falling prices might have been the reason for the losses.

As soon as he starts suffering losses, he loses control over his emotions and begins to sell those investments, losing belief in the market as well as himself. Investor’s anxiety, greed and fear are put to test in such extreme market conditions. Investor eventually might fall into the clutches of quick gains, making money in short-term, using stock tips etc. All this can be avoided if the investor is wise enough to not let his emotions drive his investment decisions. If investors are able to overpower their ego, it is possible for them to build long term wealth.

THREE WAYS TO MAKE MONEY IN THE LONG TERM

1. Focus on the quality of the business

2. Adaptability to changes

3. Manage your investments

Quality of the Business

Investor should focus on the quality of the business while selecting potential companies for investment. He should be able to ascertain which companies are worth staying invested and which ones need to be exited. It is important to understand a company’s business model because it reflects details about the scope of its activities and whether it will be able to exist for atleast a decade. Investors should invest only in those companies which are sure to grow and exist for a decade or more, thus being able to reap its benefits from a long term perspective.

Adaptability to Changes

It is said that “Change is the only constant” but people usually fail to abide by this. It is known that not everyone can adapt to changes, there are people who fear changes. Investing is not for people who fear changes and let their emotions rule their decisions because changes in the financial market are inevitable, some might be positive and some might be painful enough to shake investor’s world. What’s most important, is the capacity and the ability to tackle and adapt to these changes. If an investor is able to adapt to the extreme market conditions understand the influenced market sentiments and take wise calls, he has the potential to become one of the most successful investors.

Manage your investments

When a person falls ill, does he prefer to prescribe himself medicines or go to the doctor for treatment? A person usually goes to the doctor for treatment. Similarly, for investors, if they make losses, they should approach a financial advisor. But investors usually shy away from financial advisors. Why? It is because there are no entry barriers in financial markets (doctors require a degree to practice medicine) and investors are under no such obligation. Another reason is that the investors don’t accept and believe that there are more professional and intelligent people, than himself out there who can help them manage their investments and create wealth.

One such way to help investors have an unemotional, disciplined and patient approach towards stock market investing is a platform known as StockBasket. Following a basket approach with Stockbasket will help investors gain higher returns because each basket consists of expert-selected stocks that help to reasonably diversify the risk and at the same time, help you create wealth. These stocks are carefully selected using SAMCO’s research system and give exposure to high growth, high return companies to an investor. Thus helping you manage your money and your investments wisely and smartly.

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